Health In Tech, Inc.

1. Organization

Description of Business

Health in Tech, Inc. (collectively with SMR, Hi Card, and ICE (defined below) “HIT” or the “Company”) through its subsidiaries and consolidated accounting driven variable interest entity (“VIE”), simplifies sales, service processes and reduces sales cycle time for third-party administrators and brokers. HIT was incorporated in November 2021 in the State of Nevada, and is based in Stuart, Florida. The Company was created with the intention of consolidating each of three standalone entities into a single organization: Stone Mountain Risk, LLC (“SMR”), Health Intelligence Card, LLC (“Hi Card”), and International Captive Exchange, LLC (“ICE”) (the “subsidiaries”).

The Company’s consolidated financial statements include the accounts of HIT, its wholly owned subsidiaries, and Roscommon Captive Management LLC (“RCM”), and RCM’s invested Roscommon Insurance Company (“Roscommon”) (collectively referred to as the “Carrier”) for which the Company has been deemed to be the primary beneficiary (see Note 2).

Roscommon is a carrier of self-insurance medical insurance incorporated in November 2018 for the stop loss policies for self-funded benefits plans of individual small business employer groups. RCM, incorporated in June 2022, manages the capital and risk associated with Roscommon by managing risk managers and negotiating reinsurance agreements. Tim Johnson the founder of Health in Tech Inc., divested his equity interests of the “Carrier” business to an unrelated third party in May 2023 (see Note 3).

Stock Split

On June 4, 2024, the Company effected a 1.5-for-1 stock split of the common stock. All share, restricted stock, stock options and per share information throughout this annual report has been retroactively adjusted to reflect the stock split. The shares of common stock retain a par value of $0.001 per share. Accordingly, an amount equal to the par value of the increased shares resulting from the stock split was reclassified from “Additional paid-in capital” to “Common stock.”

Initial Public Offering

On December 24, 2024, the Company completed its Initial Public Offering (the “IPO”) in which it issued and sold 2,300,000 shares of Class A common stock, at a public offering price of $4.00 per share. The Company received net proceeds of $8,214,000 after deducting underwriting discounts and commissions of $986,000.

Offering Costs

Offering costs of $3,263,164, consisting of legal, accounting, underwriting fees and other costs relating to the IPO, were offset against the proceeds received upon the closing of the IPO when recorded in additional paid in capital on the consolidated balance sheets. As of December 31, 2023, $261,769 of offering costs were deferred and recorded on the consolidated balance sheets.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its subsidiaries and Carrier, which is a variable interest entity of which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.

Discontinued Operations

Discontinued operations represent the disposal of a component or a group of components that represents a strategic shift that will have a major effect on the Company’s consolidated operations and financial results, as well as meet the held for sale criteria. The Company has reflected the results of operations of Carrier as a discontinued operation on the Consolidated Balance Sheets and Consolidated Statements of Operations for all periods presented (see Note 3).

Segments

The Company’s chief operating decision maker (“CODM”), the Chief Executive Officer and executive committee, manages the Company’s business activities as a single operating and reportable segment from continuing operations at the consolidated level. Accordingly, the CODM uses consolidated net income to measure segment profit or loss, allocate resources and assess performance. Further, the CODM reviews and utilizes functional expenses (cost of revenues, sales and marketing, research and development, and general and administrative expenses) at the consolidated level to manage the Company’s operations. Other segment items included in consolidated net income are interest income, interest expenses, other income and the provision for income taxes, which are reflected in the consolidated statements of operations. The Company also hasone segment included in discontinued operations, which is a carrier of stop loss insurance for the self-funded benefits plans of individual small business employer groups. During 2024 and 2023, the Company did not have a material balance of long-lived assets located outside of the United States.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Making estimates requires management to exercise significant judgment. Significant items subject to such estimates and assumptions include, but are not limited to, loss and loss adjustment expense (“LAE”) reserves of the Carrier, accounts receivable allowance for revenue billing changes driven by headcount changes during billable period and stock-based compensation expense. It is at least reasonably possible that the estimates of the effect of conditions, situations or sets of circumstances that existed at the date of the financial statements, which management considered in formulating its estimates, could change in the near term due to one or more future confirming events. Actual results could differ from those estimates.

Variable Interest Entity (“VIE”)

The Financial Accounting Standards Board (“FASB”) provides guidance in ASC 810,Consolidation (“ASC 810”) for determining whether an entity is a VIE. VIE’s are defined as entities in which equity investors of the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A VIE is required to be consolidated by its primary beneficiary, which is the party that (i) has the power to control the activities that most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses, or the right to receive benefits, of the VIE that could potentially be significant to the VIE.

The Company enters business relationships and regularly assesses them under the requirements of ASC 810 to determine whether such relationships should be accounted for under the VIE model and if so, whether the Company is the primary beneficiary of the VIE.

The Company concluded it has a variable interest in Carrier that results in the Company being the primary beneficiary. This conclusion was based on the following:

The results of operations of the Carrier are included in the Company’s consolidated financial statements as discontinued operations (Note 3).

At the end of May 2023 (the “Closing Date”), the Company’s Chief Executive Officer (“CEO”) completed the sale of the Carrier. On this date, the Company has no continuing significant involvement in the operations of Carrier and they are controlled by an independent third party. As such, the Company no longer holds a variable interest in the Carrier.

Cash and Cash Equivalents

Cash and cash equivalents consist of demand deposit and time deposits with original maturities less than three months, which are unrestricted as to withdrawal or use.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, accounts receivable and loans receivable for financial periods ended December 31, 2024 and 2023. The Company further manages its credit risk on liquid funds through diversification of investment type and credit exposures. For cash, the Company places cash deposits with large financial institutions. For accounts receivable, the credit risk is managed through the use of mitigating controls, including the use of credit checks and credit limits on customers. For loans receivable, the Company monitors the exposures and counterparty credit risk on a regular basis.

Concentration of customers

Revenues from Stop-Loss Insurance Carriers

Revenue from one stop-loss insurance Carrier (“Carrier A”) accounted for 27.3% and 2.5% of the Company’s total revenues for the years ended December 31, 2024 and 2023, respectively. The amount due from Carrier A was approximately 26.5% and 16.1% of accounts receivable as of December 31, 2024 and 2023, respectively. Additionally, another stop-loss insurance Carrier (“Carrier B”) accounted for 4.0% and 16.2% of the Company’s total revenues for the years ended December 31, 2024 and 2023, respectively. The amount due from Carrier B was approximately 2.9% and 21.2% of accounts receivable as of December 31, 2024 and 2023, respectively. The Company began its relationship with the additional carrier (“Carrier C”) in August 2023. Carrier C accounted for 2.8% and 0.0% of the Company’s total revenues for the years ended December 31, 2024 and 2023, respectively. The amount due from Carrier C was approximately 23.7% and 0.0% of accounts receivable as of December 31, 2024 and 2023, respectively. While the Company is working to cooperate with more stop-loss insurance carriers, it may experience temporary service disruptions in the event the Company deems it necessary to cease use of a stop-loss insurance carrier.

Revenues from Small Business Employers Customers

The Company does not have significant concentrations of revenues from any of its small business employer customers. The Company has a diversified customer base and did not have any small business employer that accounted for more than 1.0% of the Company’s total revenues for the years ended December 31, 2024 and 2023, respectively. No small business employers accounted for more than 2.0% or 1.5% of accounts receivable, net as of December 31, 2024 and 2023, respectively.

Concentration of Cost of Revenues Service Providers

For the year ended December 31, 2024, the Company’s three primary service providers (including one data service provider, disclosed in “Concentration of Data Service Providers from Third Party Artificial Intelligence Providers”) represented 61.2%,10.6% and 8.3% of the Company’s cost of revenues, respectively. As of December 31, 2024, these three primary service providers accounted for 16.0%,36.8% and 0% of accounts payable balance, respectively. For the year ended December 31, 2023, the Company’s three primary service providers (including two data service providers, disclosed in “Concentration of Data Service Providers from Third Party Artificial Intelligence Providers”) represented 65.0%,8.4% and 7.7% of the Company’s cost of revenues, respectively. As of December 31, 2023, these three primary service providers accounted for 75.2%,0% and 0% of accounts payable balance, respectively. The Company, if necessary, could utilize others as part of its service offerings with a limited impact to the Company’s operations.

Concentration of Data Service Providers from Third Party Artificial Intelligence Providers

The Company currently utilizes two 3rd party Artificial Intelligence (“AI”) data service providers. For the year ended December 31, 2024, the Company’s two providers presented 8.3% and 2.4% of the Company’s cost of revenues, respectively. As of December 31, 2024, no balance was due to these two providers. For the year ended December 31, 2023, the Company’s two providers presented 8.4% and 7.7% of the Company’s cost of revenues, respectively. As of December 31, 2023, no balance was due to these two providers. The Company utilizes these AI data services companies as the pricing in which to procure the services is more advantageous than utilizing other vendors within this sector. While the Company only utilizes these two AI data service companies, the Company, if necessary, could utilize others as part of its service offerings with a limited impact to the Company’s operations.

Leases

The Company accounts for its leases under the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) ASC 842, Leases (“ASC 842”).

The Company assesses its contracts at inception to determine whether the contract contains a lease, including evaluation of whether the contract conveys the right to control an explicitly or implicitly identified asset for a period of time. The Company recognizes right-of-use assets and lease liabilities that represent the net present value of future lease payments utilizing a discount rate corresponding to the Company’s incremental borrowing rate and amortizing over the remaining terms of the leases, which was determined to be 10% during 2024 and 2023. The Company accounts for the leases of less than twelve months as short-term leases and does not recognize right-of-use assets and corresponding lease liabilities. The Company had no leases classified as short-term leases as of December 31, 2023. During the year ended December 31, 2024, the Company entered into a 12-month short-term lease agreement with fixed rent payable monthly.

Accounts Receivable and Allowance for Credit Losses and for Revenue Billing Adjustments

Accounts receivable are carried at original invoice amount, less any estimate made for doubtful accounts or credit losses. The allowance for credit losses is the Company’s best estimate of the amount of expected credit losses in the Company’s existing receivables over the contractual term. The Company evaluates its exposure to credit loss on both a collective and individual basis. The Company evaluates such receivables on an individual customer basis and takes into account any relevant available information, which begins with historical credit loss experience and consideration of current and expected conditions and market trends (such as general economic conditions, other microeconomic and macroeconomic considerations, etc.) and reasonable and supportable forecasts that could impact the collectability of such receivables over the contractual term individually or in the aggregate. Changes in circumstances relating to these factors may result in the need to increase or decrease the allowance for credit losses in the future. The allowance for credit losses was $0 as of December 31, 2024 and $0 as of December 31, 2023.

The Company also makes the allowance for revenue billing adjustments, under the consideration of the revenues associated with enrolled customers would have changed during the 12-month contractual term. The final reconciliation with the customers is on the 14 th month. Revenue provision is made for the customers ended their 12-month plan with a balance of less than $10,000 as of December 31, 2023 without completion of reconciliation. The revenue at the end of policy term provision as of December 31, 2023 was $85,794. During the year ended December 31, 2024, the Company completed reconciliation for customer policies ended December 31, 2023. Thus, the balance of accounts receivable allowance for revenue billing adjustments related to prior year enrollment adjustment was $0 as of December 31, 2024. Starting from January 2024, the Company began monthly contra revenue provision which was 0.8% of total revenues. The provision for customers ending their 12-month plan with balances of less than $10,000 as of December 31, 2024 without completion of reconciliation was $91,799. The total provision amounted to $249,285 or 1.3% of total revenues for the year ended December 31, 2024. The balance of accounts receivable allowance for revenue billing adjustments related to current year enrollment adjustment was $185,560 as of December 31, 2024. This incorporates three separate categories:

Other Receivables

Certain small business customers elect to receive a discount on premiums payable to carriers. In return, carriers can collect and retain these customers’ positive claim fund balance amounts. The positive claim fund is maintained in a designated account specifically earmarked for claims, held by the small employer, known as “Deferred Administrative Surplus.” As the platform company, the Company tracks and processes claims for carriers. With all necessary information for collection available on our platform, the Company signed an agreement on December 28, 2023 with Roscommon Captive Management and Roscommon Insurance Company (collectively the “Carrier”), to purchase the rights, title, interest, and collection rights to fees totaling $3,100,000 in Deferred Administrative Surplus for $1,650,000, which is 53% of the total collection rights. The Carrier was previously a related party that was consolidated and sold to a third party in May of 2023. The Carrier was no longer considered a related party after this sale.

When entering into a stop-loss insurance policy, a small business employer can elect to purchase discounted stop-loss insurance policies premiums from the Carrier by agreeing to return any positive balance in claim fund. These claim funds are held in the name of the small business employer, and the Carrier has no claim to these funds until the policy and the policy run-out period ends, which is 18 months following commencement of the policy term (the “Policy End Date”). The “run-out period” refers to six month period after the policy or plan has expired during which claims can still be submitted and processed. After the Policy End Date, any funds remaining in the claim fund belong to the Carrier. The Carrier will provide the small business employers with a reconciliation of what amounts are specifically owed. This is based on the amount of funds in the small business employers’ claim fund account, and the value of claims incurred during the policy and run-out period (the “Deferred Administrative Surplus”). The Deferred Administrative Surplus is owned by the Carrier and not subject any contingencies other than the ability to collect from the small business employer.

As part of the Company’s services to the Carrier, ICE contracted with the Carrier to collect premium and process claims expense. Therefore, in its internal system, the Company can calculate the approximate amount of positive balance in claims fund. The exact amount will be determined after full reconciliation of the claims fund after completion of the run out period.

In the case of this purchase, the Company only purchased the policies with related run-out periods that had lapsed and had positive claim fund balances according to the Company’s internal system. As such, the Company knows the value of the Deferred Administrative Surplus purchased. Following the purchase, the Deferred Administrative Surplus was assigned to the Company for collection. After the assignment, the Company performs the relevant reconciliations to demonstrate to the small business employers the amount of the Deferred Administrative Surplus now owed to the Company from the claim fund balance. The Company asks the small business owners to pay it the Deferred Administrative Surplus within 30 days of the collection requests.

The key risks associated with the collection of the Deferred Administrative Surplus relate to the Company’s limited collections experience related to the Deferred Administrative Surplus at the time of purchase from the Carrier. To reduce the Company’s collection risk, the Company negotiated with the Carrier to purchase the Deferred Administrative Surplus at 53% of its estimated face value. This was due to the Carrier not having the sufficient and proper headcount to spend the necessary time and effort to collect the Deferred Administrative Surplus after the sale of the Carrier to the third party. The Company would have to collect less than 53% of the Deferred Administrative Surplus balance for the Company to incur a loss. Currently, the Company has completed reconciliations for approximately 52% of the total estimated face value ($3,100,000) of the acquired deferred administrative fund accounts, and the Company made the request to small business employers for collection. For the reconciliations that have been completed, the Company has collected 79% of requested amount.

The purchase of the Deferred Administrative Surplus does not represent a purchase of a financial asset with credit deterioration as defined in accordance with ASC 326 — Financial Instruments, Credit Losses. Furthermore, the Company only has approximately three months of historical collection success rates at the time of entering into the contract. These collection success rates are based upon limited experience given the Company has only collected on these types of assets for a short period of time. As such, the Company has accounted for these assets under a nonaccrual approach. The Company will continue to assess this policy as additional collection information is received and collection trends are identified. The Company recorded this consideration as other receivables as of December 31, 2024 and December 31, 2023, respectively. The Company received $1,269,595 for the year ended December 31, 2024, 79% of the requested collection rights for this period.

The Company separately assessed if an allowance for credit losses was necessary for this Other Receivables. Recent data indicates that its overall collection rate of Deferred Administrative Surplus has been significant. Given no major changes to the parties involved in collection, the Company assessed the current conditions would remain in the foreseeable future and estimated that no allowance was required for receivables from Deferred Administrative Surplus as of December 31, 2024 and December 31, 2023, respectively. The Company will continue to assess its historical credit loss experience and consideration of current and expected conditions and market trends (such as general economic conditions, other microeconomic and macroeconomic considerations, etc.) and reasonable and supportable forecasts that could impact the collectability of such receivables over the contractual term individually or in the aggregate.

Loans Receivable, Net

On October 10, 2023, the Company entered into a Promissory Note Agreement with Kang Youle Limited, unsecured lending. Under this Promissory Note Agreement, the Company agreed to lend $800,000 in principal amount, which bears 8% interest per annum. The note’s maturity date is October 10, 2026. The Company has assessed this receivable for potential credit losses, noting none as of December 31, 2024 and December 31, 2023, respectively. The Company recorded this loan receivable at amortized cost on the consolidated balance sheets. See Note 5.

Software Capitalization

The Company incurs certain costs associated with the development of its Hi-Card, eDIYBS systems and other systems. The Company capitalizes certain costs associated with the development of its internal-use software after the preliminary project stage is complete and until the completion of the design, coding, installation, and testing of the software has been completed. Upgrades and enhancements are capitalized if they will result in added functionality. Capitalized costs are amortized over an expected three-year period. In May of 2023, the Company determined that its eDIYBS system was ready for its intended use. As such, the Company has entered the eDIYBS system in the post-implementation phase. For the years ended December 31, 2024 and 2023, the Company has amortized $541,141 and $339,300 of the capitalized costs associated with eDIYBS and other systems respectively, which is included in the cost of revenues line item of the Company’s Consolidated Statements of Operations. During the years ended December 31, 2024 and 2023, the Company capitalized $942,217 and $1,144,361 respectively of software development costs.

Notes Payable

On December 28, 2023, the Company entered into a Promissory Note Agreement with LEAZ Enterprises LLC, Series 2. Under this Promissory Note Agreement, the Company borrowed $1,650,000 in principal amount. There is no interest on the loan, however there is a repayment premium of $495,000 which the Company finalized in January 2024 that is treated as interest expense in financial statements of 2024. This repayment premium is accrued through the effective interest method from January 2024 through the date of maturity. The note matured on September 28, 2024 and the Company fully repaid the principal and repayment premium. See Note 4.

Impairment of Long Lived Assets

The Company evaluates the recoverability of amortizable long-lived assets whenever events or changes in circumstances indicate the carrying value of such asset may not be recoverable. Should there be an indication of impairment, the Company tests recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of the asset to the carrying amount of the asset or asset group. If the asset or asset group is determined to be impaired, any excess of the carrying value of the asset or asset group over its estimated fair value is recognized as an impairment loss. There were no impairment losses recognized on long-lived assets during the years ended December 31, 2024 and 2023.

Revenue Recognition

The objective of ASC 606 Revenue from Contracts with customers (“ASC 606”) is to establish the principles that an entity shall apply to report useful information to users of the financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. An entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, as defined in ASC 606-10-10-1 and ASC 606-10-10-2.

This evaluation under ASC 606 follows a five-step model, including:

In general, ASC 606’s core principle is to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Required disclosures under ASC 606 include qualitative and quantitative information about contracts with customers and significant judgments and estimates as to the application of the 5-step revenue recognition analysis, among others.

The Company accounts for its revenue under the accounting guidance of ASC 606,Revenue from Contracts with customers (“ASC 606”). The Company’s contracts that are within the scope of ASC 606 specifically relate to the services that are associated with customers who purchase self-funded benefits plans. These plans are facilitated through a network of brokers, TPAs, MGUs, carriers, and other third-party agents.

Identification of the Performance Obligations

The Company analyzes each of the deliverables pursuant to its contracts with customers. For each of the deliverables, the Company performs a detailed analysis to determine whether the deliverables are separately identifiable. The Company notes that although the deliverables can vary from day to day, all specifically relate to one kind of service, representing one performance obligation that is provided by each of its subsidiaries (HI Card, SMR, and ICE), as further described below.

HI Card and SMR Specific Considerations

Generally, the Company’s insurance marketplace allows brokers to customize a small employer’s self-funded benefits plan and stop loss insurance policies. When licensed brokers log in to the Company’s platform, they upload an employee census representing the employee base of the small business employer, select which network they wish to use, what plan designs they want to offer to the small business employer and then quickly obtain a bindable self-funded medically underwritten stop loss quote they can provide to their small business customers. The chosen vendors provide benefit services as outlined on the platform. The fees that the Company and others charge for the service offerings within the quote are outlined and expressly agreed to by the small employer. The small employer customizes their health insurance plan and executes an annual agreement. This agreement includes a sold case breakdown (SCB) that outlines the individual stop loss insurance and benefits service offerings selected by the small employer and the cost of each, including any optional services offered by the Company or other vendors. Through this, the Company is aware of the services that the broker is offering to the small employer for the health insurance plan period, which is normally twelve (12) months. This includes each of the performance obligations provided by its subsidiaries as further outlined below. Subsequent to the execution of the initial bindable SBC with its customers, the Company may modify the health insurance plan during the plan period when a non qualified event occurs based on the definition provided by the carriers. For example, if there is a significant fluctuation or changes of enrolled employees (EEs) from the first month.

The Company has business relationships with licensed brokers, as licensed brokers register on the Company’s platform to select and sell benefits plans and stop loss polices to small employers as discussed above. However, there is no contractual relationship between the Company or any of its subsidiaries and the brokers. The Company’s platform provides credentialing for licensed brokers, allowing them to access its marketplace to select and sell self-funded benefits plans for the small business employer at no cost. Brokers are paid by the small businesses, with no contractual relationship between the Company and the brokers, only a credentialing process, and free access is provided.

TPAs are contracted and authorized by the small business employers to enter into service contracts with SMR and HI Card on behalf of the small business employers. ASC 606 defines a customer as a party that has contracted with an entity to obtain goods or services that are an output of the ordinary activities of the company in exchange for consideration. SMR and HI Card are not providing services to the TPAs, but instead, have contracts to collaborate with the TPAs to facilitate the administration of health benefit plans and stop-loss insurance policies to its customers, which are the small business employers. The TPA will administer the purchased health benefits plan and manage the multiple service providers associated with the health benefits plan and stop-loss insurance policy. Such service providers are listed on the bindable quotes via the bindable sold case breakdown, which outlines the individual stop loss insurance and benefits service offerings selected by the small business and the cost of each. Only the small business employer can start or terminate the relationship with SMR and HI Card. The TPA cannot start or terminate the relationship with the SMR or HI Card. As such, the Company has concluded that the TPA’s are not customers and that the small business employers are the customers of SMR and HI Card pursuant to ASC 606.

ICE Specific Considerations

ICE has contractual relationships with carriers. ICE underwrites a stop-loss insurance policy and processes claims per the respective carrier’s underwriting guideline and claims processing guideline. In these instances, the carrier is the Company’s customer.

The Company’s performance obligations related to its revenue can be summarized as follows:

Claims negotiation services: The claims negotiation services performance obligation is offered as a part of the Company’s overall marketplace service offering and is performed specifically by the Company’s HI Card subsidiary. These services require the Company to negotiate the cost and facilitate small employer’s claims negotiation process with hospitals and physician facilities on behalf of the small employer. This service is optional. Revenue related to these services are included in the “Revenues from fees” within the Consolidated Statements of Operations.

Access to medical claims data: Access to medical claims data performance obligations is offered as a part of the Company’s overall insurance marketplace offering and is performed specifically by the Company’s HI Card subsidiary. The access to medical claims data performance obligation is not required to be selected by a small employer, its customer, when selecting their health insurance plan, but it is provided as an option. Revenue related to these services are included in the “Revenues from fees” within the Consolidated Statements of Operations.

Underwriting modeling and risk services: As a part of the Company’s overall insurance marketplace, ICE provides underwriting modelling, machine learning-driven underwriting services, and risk services to its customers. Through its web-based SaaS quoting platform, eDIYBS (Enhance Do It Yourself Benefit System), brokers log in to eDIYBS, upload census, select plans and generate bindable quotes. eDIYBS medically underwrites each small employer. ICE continues to assess risks and may re-underwrite based on underwriting risk guidelines provided by carriers. Any enrollment changes in a small business can have large fluctuations during a policy period that may trigger a re-underwrite. ICE not only monitors and manages these activities but also facilitates insurance reporting. Revenue related to these services are included in the “Revenues from underwriting modeling” within the Consolidated Statements of Operations. These services are provided by ICE for carriers. Unlike the Company’s other performance obligations, the Company’s agreements for its underwriting modeling and risk performance obligations are with stop loss carriers. Under these agreements, the Company develops and maintains all underwriting models, designs risk criteria, assesses the risk to underwrite a policy, monitors claims activities, provides reinsurance reporting, and provides monthly reinsurance filings. The purpose of these services is to ensure that the stop loss carrier is assuming an appropriate amount of risk when taking on a new insurance policy, and further that the premiums being charged are appropriate based upon the population of the new insurance policy (age, demographic, etc.).

Program and platform management services: As a part of the Company’s overall insurance marketplace, SMR is a program manager specializing in customized self-funded benefits programs for small businesses. SMR’s expertise in health benefits enables the Company to analyze, review and select vendors that have sufficient experience, which is an essential component of a health plan that is constantly evolving with its small business employers based on factors such as employee headcount and a specific employee’s geographic location. SMR will then design health plans, select networks, manage vendors, and ultimately construct the benefits plans for the small business employers. Licensed brokers log in to the marketplace to select and sell self-funded benefits plans to small businesses. The Company throughout the contract period is actively working with the TPA to assist administration of the plan specifically due to headcount changes. SMR also serves as the total program manager coordinate between the Carrier, the TPA, the Broker, and the small business employer, the Company’s customer. The Company’s service offerings encompass reference-based pricing, group insurance captives, community health plans, and association health programs. This service is performed for small employers to ensure that they have access to a customized health benefits program. Throughout the term of the policy, SMR is ensuring all covered employees meet the requirements and guidelines of carriers to ensure such employees of the small business employer remain covered under the respective insurance policy. The Company accounts for these services under ASC 606-10-25-14(b) as a series of distinct services that are substantially the same per enrolled employee and have the same pattern of transfer as the delivery of the specified services is satisfied over time, and each service is substantially the same and has the same measure of progress. Revenue related to these services are included in the “Revenues from fees” within the Consolidated Statements of Operations.

Each of the services above allows for the customers to simultaneously receive and consume the benefits of the Company’s performance as it performs. Program services provided by SMR and underwriting activities provided by ICE (including eDIYBS) are interdependent, as they cannot function effectively without being combined. Services provided by HI Card are optional add-on to the Company’s services, and it cannot be offered on a standalone basis. Brokers are not obligated to utilize HI Card services for small employers.

As such, the Company has determined that it is appropriate to recognize revenue over a period of the defined contractual term. The Company has determined that the pattern of transfer control to the customers are commensurate with its right to invoice given the fact that at the end of each reporting period ended December 31, all performance obligations of the Company have been satisfied and provided to the Company’s customers, and as such, the Company records its revenue based on the sold policy enrollment, which is provided by the third-party administrator upon the execution of a policy and enrollment outlines the total breakdown of the fees remitted by the third-party administrator.

Payments required throughout the duration of the policy start once a policy has become effective, and are subsequently due on policy effective date of the month through the duration of the policy. Given the Company’s policy terms, there are no performance obligations that remain unperformed at the end of each reporting period.

Disaggregation of Revenue

A summary of the Company’s disaggregated revenues are as follows:

Variable Consideration

The Company does not have variable consideration that would require constraint from the transaction price of its contracts with customers as the Company receives fixed monthly payments either based on a percentage of the monthly premiums received by the self-insurance carrier, or a fixed dollar amount based on the end users serviced during a given month.

Contract Assets and Contract Liabilities

Contract assets represent the Company’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time. Contract liabilities represent the Company’s obligation to transfer goods or services to a customer for which the entity has received consideration. As of December 31, 2024 and December 31, 2023, the Company did not have contract assets or liabilities.

Costs to Obtain a Contract

Under ASC 340-40, Other Assets and Deferred Costs — Contracts with Customers (“ASC 340”) incremental costs of obtaining a contract, such as sales commissions and bonus programs afforded to brokers, are capitalized if they are expected to be recovered. The Company elected the practical expedient under ASC 340 to expense the costs to obtain a contract as incurred when the expected amortization period is one year or less. As of December 31, 2024 and 2023, there were no such capitalized costs. During the years ended December 31, 2024 and 2023, the Company expensed $(47,002) and $632,502 related to the Company’s broker bonus program as the expected amortization period of these costs was expected to be less than one year. These costs have been included in sales and marketing expenses on the Company’s Consolidated Statements of Operations for the years ended December 31, 2024 and 2023.

Significant Financing Components

The Company elected the practical expedient that allows the Company to not assess a contract for a significant financing component if the period between the customer’s payment and the transfer of the goods or services is one year or less. There was no significant financing components during the years ended December 31, 2024 and 2023.

Cost of Revenues

The Company’s cost of revenues primarily consists of infrastructure costs to operate its platform such as hosting fees and fees paid to various third-party partners for access to their technology, services and amortization expenses of the Company’s capitalized internal-use software related to its platform.

General and Administrative Expenses

General and administrative expenses primarily consist of personnel-related costs and related expenses for the Company’s executives, finance, legal, human resources, technical support, and administrative personnel as well as the costs associated with professional fees for external legal, accounting and other consulting services, insurance premiums.

Research and Development Expenses

Research and development expenses primarily consist of personnel-related costs, including salaries and benefits for the Company’s research and development personnel. Additional expenses include costs related to the software development, quality assurance, and testing of new technology, and enhancement of its existing platform technology.

Sales and Marketing Expenses

Sales and marketing expenses primarily consist of personnel-related costs including salaries, benefits and commissions cost for the Company’s sales and marketing personnel. Sales and marketing expenses also include the costs for advertising, promotional and other marketing activities, as well as certain fees paid to various third-party for sales and customer acquisition. Advertising expenses were $61,533 and $311,084 for the years ended December 31, 2024 and 2023, respectively.

Stock-Based Compensation Expense

The Company’s share-based compensation program grant awards include stock options and restricted stock awards (“RSAs”). The fair value of stock options granted in July 2023 and August 2024 was determined using the Binomial option-pricing model. The fair value of RSAs is based on the fair value of the Company’s common stock on the date of the grant, using the DCF method and back-solve method. All of the Company’s share-based awards contain a vesting condition associated with a successful initial public offering by the Company. The Company started to recognize the stock-based compensation expense upon the completion of its IPO on December 24, 2024. Certain of the Company’s share-based awards also contain additional vesting conditions that require a certain duration of services from the grantee, for which stock-based compensation expense is typically recognized on a straight-line basis over the requisite service period starting from the closing of Company’s IPO. Forfeitures are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate awards’ forfeitures and records stock-based compensation expense only for those awards that are expected to vest. Certain of the Company’s share-based awards also contain additional vesting conditions that require the grantee to meet certain performance metrics to vest besides the liquidity event of IPO. For these awards, the final vesting has been determined based on the performance achieved as of December 31, 2023, and stock-based compensation expense was recognized upon the closing of the Company's IPO.

The Company’s expected stock price volatility assumption is based on the volatility of comparable public companies. The expected term of a stock option granted to employees and directors (including non-employee directors) is based on the average of the contractual term (generally 5 years) and the vesting period. For non-employee options, the expected term is the contractual term. The risk-free interest rate is based on the yield of U.S. Treasury securities consistent with the life of the option. The expected dividend yield was set to zero as the Company does not pay dividends on its common stock and there was no expectation of doing so as of the respective grant dates.

The Company periodically grants stock options and RSAs to non-employees for services pursuant to the Company’s stock plans at the fair market value on the respective dates of grant. Should the Company terminate any of its consulting agreements, the unvested options underlying the agreements would be cancelled.

Income Taxes

The Company utilizes the asset and liability method of accounting for income taxes as required by ASC 740,Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities as well as net operating loss carryforwards and tax credits and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that these assets may not be realized.

The Company determines whether it is more likely than not that a tax position will be sustained upon examination. If it is not more likely than not that a position will be sustained, none of the benefit attributable to the position is recognized. The tax benefit to be recognized for any tax position that meets the more-likely-than-not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for income taxes.

The Company has no accruals for interest or penalties related to income tax matters. Tax years subsequent to 2023 remain open to examination by federal and state authorities.

Net Income Per Share

The Company computes earnings per share using the two-class method. The two-class method of computing Net Income Per Share (“EPS”) is an earnings allocation formula that determines EPS for common stock and any participating securities according to dividends declared and participation rights in undistributed earnings. The Company has three classes of participating securities, common stock (Class A and Class B) and Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock was issued during the year ended December 31, 2022, and converted into Class A Common stock in August 2023 (Note 7). The Series A Convertible Preferred Stock has the same rights and preferences as the Company’s common stock, other than being convertible into shares of Class A Common Stock on a 1-for-1 ratio. Under the two-class method, the Series A Convertible Preferred Stock is considered a separate class of stock for EPS purposes and therefore basic and diluted EPS is provided below for both Class A and B Common Stock and Series A Convertible Preferred Stock. During periods of loss, there is no allocation required under the two-class method due to there being no distributed earnings for the period coupled with the fact that the Company’s Series A Convertible Preferred Stock do not contain a contractual right to absorb losses. Thus, all undistributed losses should be allocated entirely to the Company’s outstanding Class A and Class B Common Stock.

EPS is computed by dividing the sum of distributed and undistributed earnings for each class of stock by the weighted average number of shares outstanding for each class of stock for each period presented in the Company’s Consolidated Statements of Operations. In applying the two-class method, undistributed earnings are allocated to common stock.

Diluted net income per share includes the potential dilutive effect of common stock equivalents as if such securities were converted or exercised during the period, when the effect is dilutive. The Company, as noted in Note 11, issued RSAs and stock options which contain a vesting condition associated with a successful IPO. These instruments were included in the diluted net income per share calculation only after the IPO was consummated. In the periods presented, income and losses are allocated to the participating security only if the security has not only the right to participate in earnings, but also a contractual obligation to share in the Company’s losses.

The following table sets forth the computation of basic and diluted net income per share of common stock and Series A Convertible Preferred Stock for the years ended December 31, 2024 and 2023, which includes both classes of participating securities:

The following outstanding stock awards were not considered in the computation of diluted net income per share attributable to holders of common stock as they had antidilutive effects for the years ended December 31, 2024 and 2023:

Recently Adopted Accounting Standards

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The Company adopted this standard effective January 1, 2024 using a retrospective method. For further information, refer to the Segments section in Note 2 “Summary of Significant Accounting Policies.”

Recently Issued Accounting Standards Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The purpose of this guidance is to enhance the transparency and usefulness of income tax disclosures and provide comprehensive income tax information, particularly in relation to rate reconciliation and income taxes paid in the U.S. and foreign jurisdictions. This new standard will be effective for fiscal years starting after December 15, 2024, with the option to apply it retrospectively. Early adoption is also allowed. Currently, the Company is assessing the potential impact of this guidance on its consolidated financial statement disclosures.

In November 2024, the FASB issuedASU 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This standard calls for enhanced disclosures about components of expense captions on the face of the income statement. This standard will be effective for fiscal years beginning after December 15, 2026, with the option to apply it retrospectively. Early adoption is allowed. Currently, the Company is assessing the potential impact of this guidance on its consolidated financial statement disclosures.

Carrier Accounting Policies

Carrier accounting policies ceased to apply to the Company effective June 2023. At the end of May 2023, the Company’s CEO completed the sale of the Carrier. On this date, the Company has no continuing significant involvement in the operations of Carrier and they are controlled by an independent third party. As a result, Carrier was deconsolidated from the Company’s financial statements (see Note 3).

The below accounting policies relate only to the Carrier’s financial statements which were presented as discontinued operations in consolidated financial statements.

Net earned premium

Roscommon accounts for its revenues from insurance activities in accordance with the guidance of ASC 944,Financial Services — Insurance (“ASC 944”). Net earned premium represents the earned portion of Roscommon’s gross written premium for insurance policies written or assumed by Roscommon less ceded written premium (any portion of Roscommon’s gross written premium that is ceded to third-party reinsurers under Roscommon’s reinsurance agreements). The total net premium is deduction of acquisition cost from gross premium. The acquisition cost includes marketing expense, underwriting fee carrier fee and premium tax. Premium revenue is recognized over the period that coverage is effective.

Roscommon earns written premiums on a pro-rata basis over the term of the policies.

Roscommon receives revenue based on the quota shared net premium ceded from to third-party reinsurers for the compensation reimbursement for Roscommon’s acquisition and underwriting services. Excess ceding commission over the cost of acquisition and underwriting expenses is included in Underwriting and other expenses. Roscommon earns risk quota shared net premium commission on reinsurance premium ceded in a matter consistent with the recognition of the earned premium on the underlying insurance policies, on a pro-rata basis over the terms of the policies reinsured. Roscommon records the portion of ceding commission income expense which represents reimbursement of successful direct acquisition costs related to the underlying policies as an offset to the applicable direct acquisition costs.

Reinsurance

In the normal course of business, the Company seeks to reduce its loss exposure by reinsuring certain levels of risk with reinsurers. Reinsurance is accounted for in accordance with ASC 944. The Company is party to quota share reinsurance agreements with reinsurers under which the reinsurer assumes an agreed percentage of the underlying policies being reinsured and shares all premiums and incurred claims accordingly. All premiums and claims ceded under the Company’s quota share arrangements are shared proportionally with the Company’s reinsurers, up to a claims limit specified in each agreement. Ceded premium is expensed over the period that coverage is provided.

Loss and loss adjustment expense reserve

The reserves for LAE represent management’s best estimate of the ultimate cost of all reported and unreported loss incurred through the balance sheet date. Unpaid losses and LAE are based upon the assumption that past developments, along with new information that becomes available to the Company, are appropriate indicators of future events. The incurred but not reported (“IBNR”) portion of unpaid loss and LAE is based on industry experience and other factors. The methods of making such estimates and for establishing the resulting reserves are periodically reviewed and updated. Any resulting adjustments are reflected as an adjustment loss from discontinued operations, net of income taxes on the accompanying Consolidated Statement of Operations. Unpaid losses and LAE consist of the estimated ultimate cost of settling claims incurred within the reporting period (net of related reinsurance recoverable), including IBNR claims, plus changes in estimates of prior period losses. The Company reports its unpaid losses and LAE on an undiscounted basis.

The estimation of the liability for unpaid losses and LAE is inherently complex and subjective, especially in view of changes in the legal and economic environment, which impact the development of unpaid loss and LAE, and therefore quantitative techniques frequently have to be supplemented by subjective considerations and managerial judgment. In addition, trends that have affected development of liabilities in the past may not necessarily occur or affect liability development to the same degree in the future. Therefore, there can be no assurance that the ultimate liability will not materially differ from amounts reserved with a resulting material effect on the operating results of the Company.

The unpaid loss and loss adjustment expense estimate is generally calculated by first projecting the ultimate cost of all claims that have been incurred and then subtracting paid losses and estimated loss expenses. Reported losses include cumulative paid losses and loss expenses plus case reserves. IBNR includes a provision for expected development from reported claims and unreported claims.

The historical data from competitor experience provides the factors the Company uses in its actuarial analysis in estimating its loss and LAE reserves. These factors are measures over time of claims reported, average case incurred amounts, case development, severity, and payment patterns. However, these factors cannot be directly used as they do not take into consideration changes in business mix, claims management, and other subjective factors. The Company uses multiple actuarial methods in determining its estimates of the ultimate unpaid claim liabilities. Each of these methods require judgment and assumptions.

For each method, the Company used generally accepted actuarial standards in determining that the reserves make adequate provisions, under commonly accepted actuarial concepts, for the unpaid claims and statutory obligations of the Company. The Company has executed quota-share reinsurance treaties, ceding 80% of all claims and retaining 20%, the Company also purchases excess of loss reinsurance coverage, losses are projected to the ultimate claims expense that exceeds net premium earned and reserve provisions. amount to be paid. The Company then analyzes the results and may emphasize or de-emphasize some or all of the outcomes to reflect actuarial judgment regarding their reasonableness in relation to supplementary information and operational and industry changes. These outcomes are then aggregated to produce a single selected point estimate that is the basis for the actuary’s point estimate for loss reserve.

Deferred policy acquisition costs, net of ceding commissions

Incremental direct costs of acquiring insurance contracts and certain costs related directly to the acquisition process are deferred and amortized over the term of the policies or reinsurance contracts to which they relate. Those costs include commissions, certain marketing expenses, and premium taxes. Ceding commissions relating to reinsurance agreements are recorded as a reimbursement for both deferrable and non-deferrable acquisition costs. The portion of the ceding commission that is equal to the pro-rata share of acquisition costs based on quota share percentage is recorded as an offset to the direct deferred acquisition costs. Any portion of the ceding commission that exceeds the deferable acquisition costs of the business ceded is recorded as a deferred liability and amortized over the same period in which the related premiums are earned. The amortization of deferred policy acquisition benefit is included in the income for discontinued operations on the Consolidated Statements of Operations.

A premium deficiency is recognized if the sum of expected losses and LAE, unamortized acquisition costs, and policy maintenance costs exceeds the remaining unearned premiums. A premium deficiency would first be recognized by charging any unamortized acquisition costs to expense to the extent required to eliminate the deficiency. If the premium deficiency was greater than unamortized acquisition costs, a liability would be accrued for the excess deficiency. The Company does not consider anticipated investment income when determining if a premium deficiency exists. There was no premium deficiency at December 31, 2022 nor as of the date of the sale of the Carrier.

Capital and Surplus

In accordance with the South Carolina Department of Insurance, Roscommon is required to maintain capital and surplus of no less than $250,000. Capital and surplus are evaluated over time to ensure that it is adequate and commensurate with the operations of Roscommon. Subsequent to the year ended December 31, 2022, and prior to the date of sale of the Carrier, the capital and surplus was above the required minimum balance.

No distribution can be made without prior approval of the Commissioner of Insurance of the State of South Carolina. No distributions were approved or paid for the period from January 1, 2023 to May 31, 2023, the date of the sale of the Carrier (see Note 3).

3. Discontinued operations

At the end of May 2023, the Company’s Founder, Chief Executive Officer (“CEO”) completed the sale of the Carrier for $500,000. The proceeds were paid directly to the CEO, therefore are not reflected within the Company’s financial statements. On this date, the Company has no continuing significant involvement in the operations of Carrier and they are controlled by an independent third party. As such, the Company no longer holds a variable interest in the Carrier.

The Company followed the deconsolidation guidance of ASC 810,Consolidation, in order to record this transaction. Given that the Company did not hold an equity interest in the Carrier at any time prior to sale, the Company did not record a gain or loss associated with the sale of Carrier within its consolidated statement of operations for the year ended December 31, 2023.

The accounting requirements for reporting the sale of Carrier as a discontinued operation were met at the Closing Date due to the following:

Accordingly, the accompanying consolidated financial statements for all periods presented reflect this group of assets and liabilities as discontinued operations.

3. Discontinued operations (cont.)

The following table presents the amounts included in the discontinued operations on the Company’s Consolidated Statements of Operations for the five months ended May 31, 2023:

The following table presents a summary of total operating and investing cash flows of discontinued operations for the five months ended May 31, 2023:

Cash provided by operating activities for the period from January 1, 2023 to May 31, 2023 was $5,168,376, resulting from net income from discontinued operations $1,481,254, offset by $78,800 in adjustments for non-cash items deferred tax benefits and $3,765,922 of cash provided by changes in working capital.

Cash used in investing activities was$0 for the period from January 1, 2023 to May 31, 2023.

4. Notes Payable

On December 28, 2023, the Company entered into a Promissory Note Agreement with LEAZ Enterprises LLC, Series 2. Under this Promissory Note Agreement, the Company borrowed $1,650,000 in principal amount. There is no interest on the loan, however there is a repayment premium of $495,000 finalized in January 2024 that is treated as interest expense in financial statements of 2024. This repayment premium is accrued through the effective interest method from January 2024 through the date of maturity. The note matured on September 28, 2024 and the Company fully repaid the principal and repayment premium. As of December 31, 2024 and December 31, 2023, the outstanding principal amount was $0 and $1,650,000, respectively.

5. Loans Receivable, Net

On October 10, 2023, the Company entered into a Promissory Note Agreement with Kang Youle Limited, unsecured lending. Under this Promissory Note Agreement, the Company agreed to lend $800,000 in principal amount, which bears 8% interest per annum. The note’s maturity date is October 10, 2026. As of December 31, 2024 and December 31, 2023, the outstanding principal amount was $800,000. The Company accrued interest that is due and payable in the amount of $15,995 and $15,999 as of December 31, 2024 and December 31, 2023, respectively. This amount is included within “Loans receivable, net” on the consolidated balance sheets.

Although not part of HIT’s core business, the Company will strategically invest its assets in a manner to maximize risk -adjusted return and promote shareholder wealth. The Company provided the promissory note to Kang Youle Limited, an independent third party with access to a network of insurance sectors internationally.

6. Stockholders’ Equity

On June 4, 2024, the Company effected a 1.5-for-1 stock split of the common stock. All share, restricted stock, stock options and per share information throughout this annual report has been retroactively adjusted to reflect the stock split. The shares of common stock retain a par value of $0.001 per share.

In November of 2021, the Company’s inception, the Company issued 1,500 shares of its Common Stock to the founders of the Company. These shares had a par value of $0.001, and entitled the holders toone vote per share.

In December of 2021, the Company amended its Articles of Incorporation to authorize 50,000,000 shares of its Common Stock. As part of this amendment, the Company issued an additional 44,998,500 shares of its Common Stock to certain executives of the Company. This resulted in a total of 45,000,000 shares of the Company’s Common Stock, with a par value of $0.001, being issued and outstanding as of December 31, 2021.

In March of 2022, the Company again amended its Articles of Incorporation to provide for two classes of Common Stock (Class A Common Stock and Class B Common Stock), as well as authorize the issuance of Series A Convertible Preferred Stock. As part of the amendment to the Articles of Incorporation, the Company is authorized to issue 50,000,000 shares of Class A Common Stock,50,000,000 Shares of Class B Common Stock, and 20,000,000 shares of Series A Convertible Preferred Stock. As part of this amendment, previously issued 45,000,000 shares of Common Stock were split into 22,500,000 shares of Class A Common Stock and 22,500,000 shares of Class B Common Stock. The Class A Common Stock, the Class B Common Stock, and the Series A Convertible Preferred Stock all have a par value of $0.001.

The Company accounted for the above transactions as a stock split under ASC 505,*Equity,*as all existing shareholders at the time of this transaction received their pro rata portion of Class A and Class B Common Stock. All periods have been retroactively adjusted to reflect the stock split.

In November of 2022, the Company amended its Articles of Incorporation to authorize an additional 100,000,000 shares of its Class A Common Stock, with a par value of $0.001. As part of this amendment, the Company is now authorized to issue a total of 150,000,000 shares of its Class A Common Stock. Holders of Class A Common Stock are entitled toone vote per share, and will vote collectively with the holders of Class B Common Stock and Series A Convertible Preferred stock.

In August of 2023, the Company received notice that the holders of the Company’s 6,769,358 Series A Convertible Preferred Stock voluntarily elected, in accordance with their respective conversion rights, to convert their shares of Series A Convertible Preferred Stock on a one to one basis into Class A Common Stock. Given that this was in accordance with the Series A Convertible Stockholders’ conversion rights, no incremental expense was recognized by the Company as a result of this conversion (see Note 7).

On August 9, 2024, two holders of the Company’s Class B Common Stock converted 10,800,000 shares of Class B Common Stock on a one to one basis into Class A Common Stock.

On December 24, 2024, the Company completed its IPO in which it issued and sold 2,300,000 shares of Class A common stock, at a public offering price of $4.00 per share. The Company received net proceeds of $8,214,000 after deducting underwriting discounts and commissions of $986,000.

The RSAs granted to employees under the Company’s 2022 Equity Incentive Plan all contain a vesting condition that is associated with a successful IPO, with certain of these awards having vesting conditions that further require a certain duration of services from the grantee, or for the Company to meet certain performance metrics in order to vest. In connection with the IPO, the Company issued an aggregate of 545,512 shares of Class A Common Stock, par value $0.001 per share, to settle fully vested RSAs in December 2024 (see Note 11).

As of December 31, 2024 and December 31, 2023,42,914,870 and 29,269,358 shares of Class A Common Stock were issued and outstanding, respectively. As of December 31, 2024 and December 31, 2023,11,700,000 and 22,500,000 shares of Class B Common Stock were issued and outstanding, respectively.

6. Stockholders’ Equity (cont.)

Holders of Class B Common Stock are entitled toten votes per share with holders of Class A Common Stock are entitled toone vote per share. Both classes of Common Stock will vote collectively with the holders of Series A Convertible Preferred stock.

Holders of Class A and Class B Common Stock are entitled to dividends when, and if, declared at the discretion of the Company.

7. Series A Convertible Preferred Stock

On June 4, 2024, the Company effected a 1.5-for-1 stock split of the common stock. All share, restricted stock, stock options and per share information throughout this annual report has been retroactively adjusted to reflect the stock split. The shares of common stock retain a par value of $0.001 per share.

In August of 2023, the Company received notice that the holders of the Company’s 6,769,358 Series A Convertible Preferred Stock voluntarily elected, in accordance with their respective conversion rights, to convert their shares of Series A Convertible Preferred Stock on a one to one basis into Class A Common Stock. Given that this was in accordance with the Series A Convertible Stockholders’ conversion rights, no incremental expense was recognized by the Company because of this conversion.

As of December 31, 2024 and December 31, 2023, the Company had no Series A Convertible Preferred Stock.

8. Commitments and Contingencies

From time to time, the Company is party to various litigation matters incidental to the conduct of its business. The Company is not presently party to any legal proceedings the resolution of which it believes would have a material adverse effect on its business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels.

Leases

The Company entered into a five-year lease for its corporate headquarters in Stuart, Florida, commencing in November of 2022. The Company’s real estate lease also includes executory costs such as common area maintenance (non-lease component) and real estate taxes (not considered a component of the Company’s lease). As a practical expedient permitted under ASC 842, the Company has elected to account for the lease and non-lease components as a single lease component. The rent-related expense for this lease was $83,247 for both the years ended December 31, 2024 and December 31, 2023. The Company had no leases classified as short-term leases as of December 31, 2023. During the year ended December 31, 2024, the Company entered into a 12-month short-term lease agreement with fixed rent payable monthly.

The Company’s office lease is classified as an operating lease. At the inception date of the office lease, the Company recorded a right-of-use asset of $330,554 in operating lease right-of-use asset, as well as an operating lease liability of $324,021. This lease liability represented the net present value of future lease payments for the lease utilizing a discount rate of 10%, which corresponded to the Company’s incremental borrowing rate.

During the years ended December 31, 2024 and December 31, 2023, the Company made cash payments of $81,358 and $78,988 for amounts included in the measurement of lease liabilities, respectively.

The following table reconciles the undiscounted lease liabilities to the total lease liabilities recognized on the Consolidated Balance Sheet as of December 31, 2024:

The remaining lease term was 3 years and 4 years as of December 31, 2024 and of December 31, 2023, respectively.

The discount rate used to determine the operating lease liability was 10% as of December 31, 2024 and December 31, 2023.

9. Related Party Transactions

Other receivables — related party

In 2023, the Company received $18,242 from the related party, which was the advanced expense payment made for the related party in 2022. The amount due from the related party was $0 as of December 31, 2024 and 2023.

10. Income Taxes

During the years ended December 31, 2024 and December 31, 2023, the Company incurred $218,523 and $945,236 income tax expense, respectively.

The Company’s income tax provision consists of the following for the years ended December 31, 2024 and 2023:

The Company’s net deferred tax assets and liabilities consisted of the following as of December 31, 2024 and 2023:

As of December 31, 2024 and 2023, the Company had no U.S. federal net operating loss carryforwards.

The income tax expense recognized in each period differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the years ended December 31, 2024 and 2023 due to the following:

The Company’s effective tax rate for its continuing operations for the year ended December 31, 2024 was 24.58%, which differs from the U.S. federal statutory rate of 21%, primarily due to state taxes, net of federal benefit and permanent difference.

11. Stock-Based Compensation

2022 Equity Incentive Plan

On June 4, 2024, the Company effected a 1.5-for-1 stock split of the common stock. All share, restricted stock, stock options and per share information throughout this annual report has been retroactively adjusted to reflect the stock split. The shares of common stock retain a par value of $0.001 per share.

On December 21, 2022, the Company adopted and approved the Health in Tech Equity Incentive Plan (the “2022 Plan”), which provides for the issuance of 4,501,683 shares of our Class A Common Stock for purposes of attracting, retaining, and motivating key employees, directors, and consultants. The 2022 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock and restricted stock units. Upon the consummation of the Company’s initial public offering on December 24, 2024, the 2024 Equity Incentive Plan (the “2024 Plan”) went into effect. The terms of the 2022 Plan continue to govern the 1,145,182 shares of restricted stock and 2,320,505 options outstanding in the plan as of December 31, 2024. There are no shares reserved for future issuance in the 2022 Plan.

2024 Equity Incentive Plan

On December 24, 2024, the Company adopted and approved the 2024 Plan. The 2024 Plan is a comprehensive incentive compensation plan under which the Company can grant 7,677,849 shares of equity-based and other incentive awards to officers, employees, directors, consultants and advisers. The purpose of the 2024 Plan is to help the Company attract, motivate and retain such persons with awards under the 2024 Plan and thereby enhance shareholder value. The 2024 Plan provides for the grant of stock options, stock appreciation rights, performance share awards, performance unit awards, distribution equivalent right awards, restricted stock awards, restricted stock unit awards and unrestricted stock awards. As of December 31, 2024, no award was granted under the 2024 Plan.

During the year ended December 31, 2022, the Company issued 361,650 RSAs (355,650 restricted stock awards remaining as of December 31, 2023 due to employee termination), which have a five-year contractual term. These RSAs vest upon a successful initial public offering. Additionally, on July 1, 2023, the Company issued 631,532 RSAs and 2,220,505 stock options. During the year ended December 31, 2024, the Company issued 177,500 RSAs and 100,000 stock options. These share-based awards all contain a vesting condition that is associated with a successful initial public offering, with certain of these awards having vesting conditions that further require a certain duration of services from the grantee, or for the Company to meet certain performance metrics in order to vest.

Given that all of the Company’s share-based compensation have a vesting condition that requires the Company to complete a successful IPO, the Company started to recognize the stock-based compensation expense upon the completion of its IPO on December 24, 2024.

Restricted Stock Awards

The table below identifies the RSAs activity under the 2022 Plan for the relevant periods presented:

11. Stock-Based Compensation (cont.)

As of December 31, 2024, there was $544,430 of unrecognized compensation cost, adjusted for estimated forfeitures based on historical data, related to non-vested service-based RSAs. The RSAs are expected to be recognized over a weighted-average remaining requisite service period of 0.6 years, using the straight-line method. The total fair value of the RSAs vested was $248,794 and $0 during the years ended December 31, 2024 and 2023, respectively. The weighted-average grant-date fair value per share of RSAs granted was $1.51 and $0.71 during the years ended December 31, 2024 and 2023, respectively.

Options

The table below identifies the stock options activity under the 2022 Plan for the relevant periods presented:

The intrinsic value of a stock option is calculated as the difference between the per share exercise price of the underlying stock option award and the estimated per share fair value of the Company’s common stock at the measurement date before the IPO or the closing stock price on the last trading day in fiscal year since the IPO. There were no stock options exercised during the years ended December 31, 2024 and 2023. The weighted-average fair value of options granted during the years ended December 31, 2024 and 2023 was $0.83 and $0.31 per share, respectively. The total fair value of options vested during the years ended December 31, 2024 and 2023 was $178,219 and $0, respectively.

As of December 31, 2024, there was $575,313 of unrecognized compensation cost, adjusted for estimated forfeitures based on historical data, related to non-vested service-based stock options, which is expected to be recognized over a weighted-average remaining requisite service period of 0.6 years, using the straight-line method.

The estimated fair value of stock options was calculated using the Binomial option-pricing model, based on the following range of assumptions:

Expected volatilities are based on historical volatilities of the similar public companies’ common shares over the respective expected term of the share-based awards. Risk-free interest rate is based on the yield of U.S. Treasury Strips with maturity terms similar to the expected term on the share-based awards. The exercise multiples are the share price multiples upon which the employees are likely to exercise share options. Fair market value per common share is the market value of the Company’s stocks on the grant date. The shares of common stock to be issued upon the exercise of stock options are made available from authorized and unissued common stock.